Concordia Healthcare Corp. T.CXR.R

UK RISKS TO PRICE TARGET OF 49 cents

[RodneyCameron]

The following risks could impact Concordia's ability to meet our price target of $0.49, valuation, and rating expectations. Concordia's International business derives ~70% of its revenues from the UK. Over the past year, the NHS has started to review regulations surrounding the pricing of generic drugs, particularly those that have little or no competition. In September 2016, the NHS tabled a bill to further control drug costs in the UK, particularly those that fall under the statutory pricing scheme not the voluntary PPRS. As 88% of AMCo's products have two or fewer competitors, future price increase limits will hold back growth in AMCo although management remains committed to introducing new products and growing organically. It remains unclear what stance the NHS will take on imposing price cuts on certain drugs in the UK, but this could lead to further pricing risk for certain AMCo products. We also believe that following conclusion of the UK CMA's investigation into Flynn/Pfizer, which resulted in a fine and mandated price reductions, there is an overhang on Concordia. Lastly, the lack of disclosure limits our visibility into the company's operations.